The Most Important Article You Are Going to See About the Coming Explosion in Price Inflation

Federal Reserve Board policy meeting

 Accelerating price inflation is knocking on the door of the United States economy.

As I have pointed out before, the Federal Reserve money printing over the last year has been completely irresponsible. Not that any money printing makes sense, but Federal Reserve Board chairman Jay Powell is hooked on green ink that would make a San Francisco Tenderloin heroin junkie think he has only a minor problem in comparison.   

Here is data showing annualized money supply growth over the last 40 years. Over this period money supply growth has not come close to what we have experienced over the last 12 months.

click for larger view

The latest data from the Federal Reserve show money supply growth at 25.7%.

As can be seen in the chart above, over the last 40 years, except for the last 12 months, money supply has never climbed on an annual basis by even 15%! Most of the time it has been below 10%.

The current money printing is a major outlier. It is extremely serious money growth but the Federal Reserve members that set monetary policy do not seem to care---despite warnings.

An article published in The New York Times by Jim Tankersley and Jeanna Smialek sets the entire scene.

This is the article that should be referenced in the time ahead when the price inflation roars.

This article makes clear that Fed Chairman Powell and other Fed policymakers are ignoring the threat ahead.

From the article (my bold):

Presidents who find themselves digging out of recessions have long heeded the warnings of inflation-obsessed economists, who fear that acting aggressively to stimulate a struggling economy will bring a return of the monstrous price increases that plagued the nation in the 1970s.

Now, as President Biden presses ahead with plans for a $1.9 trillion stimulus package, he and his top economic advisers are brushing those warnings aside, as is the Federal Reserve under Chair Jerome H. Powell.

The article also points out the absurd thin thread of justification that Powell and his pumpettes are using to justify the money printing explosion:

 After years of dire inflation predictions that failed to pan out, the people who run fiscal and monetary policy in Washington have decided the risk of “overheating” the economy is much lower than the risk of failing to heat it up enough.

There you have it. After "years of dire inflation predictions" the Fed is brushing aside the warnings, despite the fact that the money pumping over the last 40 years has not come anywhere near the money pump that is going on now.

What the Fed policymakers are really saying is, "Well, over the last 40 years, we haven't pumped money supply at even 15% annualized and we didn't have a serious price inflation problem, so we will have no inflation problem now that we are pumping at over 25%."

Isn't this how kids with brand new driver's licenses get into car accidents, "Well, I didn't get into an accident driving at 70 miles per hour, so I will crank it up to 130"?

The article points out the Fed has no plans to stop the mad money printing:

 Fed officials have signaled that they plan to keep holding rates near zero and buying government-backed debt at a brisk clip to stoke growth.

And, as the article points out, establishment economists who have been around the block are providing warnings:

The Fed and the administration are staying the course despite a growing outcry from some economists across the political spectrum, including Lawrence Summers, a former Treasury secretary and top adviser in the Clinton and Obama administrations, who say Mr. Biden’s plans could stir up a whirlwind of rising prices...

“It’s hard to look at all those factors and not conclude there’s going to be inflationary pressure,” said Michael R. Strain, an economist at the conservative American Enterprise Institute who supported relief efforts earlier in the recession but was among the first economists to warn Mr. Biden’s plans could set off price spikes.“My worry is that by pushing the economy so hard, that will lead to some overheating.”

"Some overheating" will prove to be quite the understatement but the understanding and warning are there.

As the article shows, despite the warnings and the data itself, Powell is being backed up in his irresponsible money printing by Biden's Treasury Secretary Janet Yellen:

No one better embodies the sudden break from decades of worry over inflation — in Washington and elite circles of economics — than Janet L. Yellen, the former Federal Reserve chair and current Treasury secretary. Ms. Yellen spent the bulk of her career fighting in a war against inflation that economists have been waging for more than a half century. But at a time when the American economy remains 10 million jobs short of its pre-pandemic levels, and millions of people face hunger and eviction, she appears to be ready to move on.

“I have spent many years studying inflation and worrying about inflation,” Ms. Yellen told CNN earlier this month. “But we face a huge economic challenge here and tremendous suffering in the country. We have got to address that. That’s the biggest risk.”

And here is the article citing more fromPowell:

In the guarded language of a Fed chair, Mr. Powell used a speech last week to push back on the idea that the economy was at risk of overheating. He said that prices could show a brief pop in the coming months, as they rebound from very low readings last year, and he said the economy could see a “burst” of spending and temporarily higher inflation when it fully reopened. But he said he expected such increases to be short-lived — not the sustained spiral that many economists worry about.

“That’s really not going to mean very much,” Mr. Powell said, noting that inflation has trended lower for decades. “Inflation dynamics will evolve, but it’s hard to make the case why they would evolve very suddenly, in this current situation.”

This is it. Tuck the Times article away. 

Powell and Yellen (and the Fed pumpettes) will not be able to say there were no warnings about the explosion in money supply they supported and the price inflation it created. History will show they were blind to the obvious and created an inflationary mess.

-RW